US automakers consider tough reforms

HELP ON THE WAY GM will get US$9.4 billion from the US government by the middle of next month and rival Chrysler will receive around US$4 billion, officials said

AFP , WASHINGTON

Dodge Ram trucks manufactured at Chrysler LLC’s Warren Truck Assembly plant sit in a storage lot in Detroit, Michigan, on Friday. Earlier this week, Chrysler, the third-largest US automaker, said it would close all 30 of its plants for at least a month at the end of shifts on Friday as it combats plummeting demand for vehicles.

PHOTO: BLOOMBERG

US automakers mulled painful reforms yesterday after US President George W. Bush unveiled a US$13.4 billion rescue loan for the struggling industry, but demanded tough reforms in return in a move aimed at staving off a new economic calamity.

“In the midst of a crisis and a recession allowing the US auto industry to collapse is not a responsible course of action,” Bush said as he released the package on Friday, after weeks of deliberations.

General Motors (GM) and Chrysler, facing a threat of imminent bankruptcy that could create economic chaos and throw millions out of work across the country, agreed to the terms and will get the loans starting on Dec. 29.

GM will get US$9.4 billion in two installments through the middle of next month and Chrysler up to US$4 billion this month, officials said.

Ford said it would not be part of the loan program, which could include an additional US$4 billion from February for GM pending congressional action.

The funds will come from the Treasury’s US$700 billion Troubled Asset Relief Program (TARP) approved in October to bail out struggling financial institutions.

The companies have to provide warrants for non-voting stock, accept limits on executive pay and perks and give priority to the government loans over other debts, to the extent permitted by law.

The automakers will have to take steps to prove their viability by March 31 or the government could require the funds to be repaid.

“The automakers and unions must understand what is at stake and make hard decisions necessary to reform,” Bush said.

He said restructuring the industry would “require meaningful concessions from all involved in the auto industry.”

Among the “targets” established by the loan would be a two-thirds reduction in debt by exchanging debt for equity, more flexible work rules and cuts in wages to make the companies competitive with foreign carmakers established on US soil.

“The loan will be automatically called by the government and will be repaid in full if certain conditions are not met” by March 31, a senior administration official said. “The most important one is that the firms must be viable.”

GM lauded the action and said in a statement: “This action helps to preserve many jobs, and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us.”

But the United Auto Workers union said it would try to reverse “unfair conditions” imposed on workers in the bailout, saying they had already made sharp concessions.

“We will work with the [Barack] Obama administration and the new Congress to ensure that these unfair conditions are removed as we join in the coming months with all stakeholders to create a viable future for the US auto industry,” union president Ron Gettelfinger said.

In Argentina, workers at a GM plant in western Santa Fe blocked access to the premises to protest more than 100 planned layoffs, after contract negotiations broke down and were postponed by a government mediator to Friday. Instead of layoffs, union leaders are asking for the plant’s reduced work schedule to be absorbed equally by the plant’s 2,000 workers.

Officials said the loan would be managed by the US Treasury and that no “car czar” would be appointed, but that president-elect Barack Obama would be allowed to designate one after taking office Jan. 20.